Renewed sub-Saharan optimism

Sub-Saharan Africa has begun 2017 with renewed optimism. Economic growth over the year is expected to rebound to at least 2.8% from 1.5% in 2016, and rise to 3.7% in 2018, according to data from the International Monetary Fund. Growth will be supported by increased global demand, a modest recovery in the price of oil and other commodities, and increased infrastructure spending in many countries. The larger economies which dragged down regional growth in 2016 are recovering.

Stabilising commodity prices and an improving external environment will help to narrow the fiscal and current account deficits for the region to less than 4% of GDP. Inflation is expected to recede to less than 10% in 2017, boosting consumption and allowing central banks to loosen monetary policies.

However, public debt ratios are likely to remain elevated, with more than 70% of sub-Saharan countries expected to retain debt levels above 40% of GDP in 2017. This raises concerns about debt sustainability in the region. Only Ghana and South Africa issued Eurobonds in 2016, but higher issuance is expected in 2017, as countries try to close financing gaps.

The Nigerian economy contracted by 1.5% in 2016 but is expected to exit recession this year. The IMF projects the economy to expand by 0.8% in 2017, lifted by increased oil prices and a $30bn infrastructure programme. There will be a gradual rebalancing of the foreign exchange market following the floating of the naira in June 2016.

South Africa’s prospects are strengthening, with growth of 0.8% projected in 2017 after a mediocre 0.3% in 2016, as external demand gradually improves and drought shocks dissipate. However, tensions in the ruling African National Congress, a lacklustre labour market and uncertainties around US trade policies may weigh on the country’s prospects.